Rent Regulation Doesn’t Slow New Construction

Rent Regulation Doesn’t Slow New Construction

The landlord lobby has promoted a number of myths about rent regulation and its effects in order to counter the growing movement to repeal vacancy decontrol and strengthen our rent laws. One of these longstanding myths is that rent-regulation discourages new housing construction. This is simply untrue, and their promotion of this myth is highly misleading.

In New York municipalities that have rent-regulation, only buildings with six or more units that were built prior to 1974 are automatically subject to rent-regulation. Newly constructed buildings are not subject to rent regulation at all unless the owner voluntarily opts into the rent stabilization system, in exchange for generous property tax abatements. Most landlords choose to place their buildings under rent-stabilization to receive these tax breaks, and they are able to set initial rents at whatever price the open market can bear. Developers who construct new buildings and choose not to take advantage of special tax abatements can enter into a contract with the Commissioner of the New York State Division of Housing and Community Renewal that will exempt their buildings from rent regulations for fifty years, in case legislatures were to impose new regulations in the future.

The rate of housing construction is not influenced by rent-regulation, which affects only existing buildings, but rather is affected by factors such as the price of land, labor, materials, and the availability and cost of financing. In a real estate industry-supported study, examining, in part, the effects of moderate rent regulations on new housing construction, economist Anthony Downs found that “repeated studies of temperate rent controls in the United States provide no persuasive evidence that such controls significantly reduce new construction here.”

In most cases, companies that own and manage rental properties are different from those involved in the development of new housing. The windfalls that landlords collect when rent-regulated apartments are deregulated do not typically fall into the hands of companies that then invest this money in new housing construction. The overall effect of deregulation is the transfer of greater amounts of money from primarily low and middle income renter households into the hands of already wealthy landlords.

Rent regulation must be part of a comprehensive strategy for expanding affordable housing options that include new housing construction. Even during robust years, if every new unit of housing constructed were made affordable to low and middle income families, the rate of new construction would not even keep pace with the amount of existing affordable housing that vacancy decontrol is causing us to lose. New affordable housing construction often requires significant government subsidies, and even when that is available, the question remains where such housing can be built to accommodate the great needs. Rent-regulation preserves housing affordability at virtually no cost to the State. While the rates of new housing construction are slowed by factors such as the high cost of land, materials, and labor, as well as the lack of available space, they are in no way inhibited by the rent-regulations that apply to existing buildings.

The future of affordable, decent housing in New York depends on the preservation of rent-regulated apartments. This is why it is so important to repeal vacancy decontrol now!


Sources: “Rent Regulation in New York: Myths and Facts” by Timothy L. Collins, Second Edition, NYS Tenants & Neighbors Information Service, May 2009. Anthony Downs, Residential Rent Controls: An Evaluation, 4. (Washington, D.C.: Urban Land Institute, 1988.)

 

First published by Met Council on Housing: June 17, 2009